UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES

	Investment Company Act file number: 811-02319
Fort Dearborn Income Securities, Inc.
(Exact name of registrant as specified in charter)
One North Wacker Drive, Chicago, IL 60606-2807
(Address of principal executive offices) (Zip code)

Joseph J. Allessie, Esq.
UBS Global Asset Management (Americas), Inc.
1285 Avenue of the Americas
New York, NY 10019
(Name and address of agent for service)

Copy to:
Bruce Leto, Esq.
Stradley Ronon Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, PA 19103-7098

Registrant’s telephone number, including area code: 212-821 3000

Date of fiscal year end: September 30

Date of reporting period: March 31, 2014

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Item 1. Reports to Stockholders.

Closed-end funds

March 31, 2014

 

Fort Dearborn Income Securities, Inc.
Semiannual Report

 

 

 

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Fort Dearborn Income Securities, Inc.

¹ The Barclays US Aggregate Index is an unmanaged broad based index designed to measure the US-dollar-denominated, investment-grade, taxable bond market. The index includes bonds from the Treasury, government-related, corporate, mortgage-backed, asset-backed and commercial mortgage-backed sectors. Investors should note that indices do not reflect the deduction of fees and expenses.

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Fort Dearborn Income Securities, Inc.

Market commentary
The overall US economy continued to grow during the reporting period, but the pace of the expansion moderated. The Commerce Department reported gross domestic product (“GDP”) growth in the US of 4.1% during the third quarter of 2013. This represented the highest GDP reading since the fourth quarter of 2011. The Commerce Department then reported that fourth quarter 2013 GDP growth was 2.6%. The initial estimate for first quarter 2014 GDP growth was 0.1%.² Decelerating growth was partially due to severe winter weather in parts of the US, along with moderating growth overseas which negatively impacted US exports.

The Federal Reserve Board (the “Fed”) took a number of actions during the reporting period. Looking back, at his press conference following the central bank’s meeting in June 2013, Fed Chairman Ben Bernanke signaled that the Fed might moderate the monthly pace of its bond purchases later in the year. However, at its meeting in September 2013, the Fed surprised the market by delaying the tapering of its asset purchases.

At its final meeting of 2013, in December, the Fed announced that it would begin paring back its monthly asset purchases, saying, “Beginning in January, the Committee will add to its holdings of agency mortgage-backed securities at a [reduced] pace of $35 billion per month rather than $40 billion per month, and will add to its holdings of longer-term Treasury securities at a [reduced] pace of $40 billion per month rather than $45 billion per month.”

At its meetings in January and March 2014, the Fed said it would further taper its asset purchases, in each case paring its total purchases a total of $10 billion a month. Beginning in April 2014, the Fed planned to purchase a total of $55 billion a month ($25 billion per month of agency mortgage-backed securities and $30 billion per month of longer-term Treasuries). At its meeting in March 2014, the Fed also backed off its previous statement that raising interest rates could be tied to a 6.5% unemployment rate. In its official statement, the Fed said, “This assessment [of when to raise rates] will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments.”

Finally, at the Fed’s meeting in April, it said it would further reduce its monthly purchases. Beginning in May, it will buy a total of $45 billion a month ($20 billion of agency mortgage-backed securities and $25 billion of longer-term Treasuries).³

US Treasury yields moved higher during the reporting period and provided a headwind for the overall bond market (yields and bond prices move in opposite directions). Despite this, the US taxable spread sectors⁴ generated positive results during the six months ended March 31, 2014. Among the best performers were high yield bonds (up 6.56% as measured by the BofA Merrill Lynch High Yield Cash Pay Constrained Index), as they were supported by overall solid corporate fundamentals, low defaults and generally strong demand. The overall US bond market, as measured by the Barclays US Aggregate Index, gained 1.70% during the reporting period.

Portfolio commentary
What worked

• The Fund’s spread sector exposure drove its outperformance during the reporting period.

–

Security selection and a large overweight allocation to investment grade corporate bonds—with a focus on financials—contributed the most to performance.

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Fort Dearborn Income Securities, Inc.

	–	An overweight and selection of high yield corporate bonds was also beneficial to results during the six-month reporting period.
	–	Elsewhere, an overweight to and security selection of commercial mortgage-backed securities (“CMBS”) was beneficial for results, albeit to a lesser extent.

• The Fund’s yield curve positioning was also positive for results.

What didn’t work

• The Fund’s duration positioning produced mixed results during the reporting period.

–

We tactically adjusted the Fund’s duration during the reporting period, given changing economic and market conditions. When the reporting period began, the Fund’s duration was 5.6 years. This was reduced to 4.6 years at the end of March 2014. While this positioning added value earlier in the period, it detracted from relative performance in early 2014 as yields declined from their year-end highs.

Portfolio adjustments

• There were no significant adjustments made to the portfolio’s sector positioning during the reporting period. However, we started to employ certain derivatives. Elsewhere, the Fund initiated a position in collateralized loan obligations during the second half of the period.

	–	The fund utilized US Treasury and Eurodollar futures and options to more effectively manage the Fund’s duration and yield curve positioning. Overall, duration and yield curve management strategies generated mixed results during the reporting period.
	–	The Fund also utilized certain credit default swaps to add to its CMBS exposure.

Outlook
Despite experiencing headwinds from severe winter weather, we believe that the US economy has enough momentum to continue expanding and will accelerate somewhat as the year progresses. Overseas, a modest economic recovery is occurring in Europe, although deflation remains a concern. Elsewhere, growth in China has decelerated, which could negatively impact the global economy.

Turning to the fixed income market, regardless of some weaker than expected economic data and geopolitical issues, the Fed appears on track to continue paring its monthly asset purchases and potentially ending this phase of quantitative easing during the fourth quarter of 2014. While the market has been rather fixated on when the Fed will move to raise rates, we do not see this occurring until sometime in 2015. However, the market may begin to “price in” rising rates prior to the Fed taking action. We maintain our generally positive outlook for the spread sectors. US credit fundamentals continue to be strong and defaults should remain well below their historical average. That said, spreads in the US are significantly tighter than they were during the financial crisis. As such, their returns will likely be less robust in 2014. Given relatively wider spreads, we see select opportunities in euro-denominated credit.

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Fort Dearborn Income Securities, Inc.

We thank you for your continued support and welcome any comments or questions you may have. For additional information regarding the Fund, please contact your Financial Advisor, or visit us at www.ubs.com/globalam-us.

Sincerely,
Mark E. Carver President Fort Dearborn Income Securities, Inc. Managing Director UBS Global Asset Management (Americas) Inc.		Scott Dolan Portfolio Manager Managing Director UBS Global Asset Management (Americas) Inc.
John Dugenske Portfolio Manager Managing Director UBS Global Asset Management (Americas) Inc.		Craig Ellinger Portfolio Manager Managing Director UBS Global Asset Management (Americas) Inc.
Brian Fehrenbach Portfolio Manager Managing Director UBS Global Asset Management (Americas) Inc.

 

 

This letter is intended to assist shareholders in understanding how the Fund performed during the six months ended March 31, 2014. The views and opinions in the letter were current as of May 9, 2014. They are not guarantees of future performance or investment results and should not be taken as investment advice. Investment decisions reflect a variety of factors, and we reserve the right to change our views about individual securities, sectors and markets at any time. As a result, the views expressed should not be relied upon as a forecast of the Fund’s future investment intent. We encourage you to consult your financial advisor regarding your personal investment program.

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Fort Dearborn Income Securities, Inc.

Performance at a glance (unaudited)

Average annual total returns for periods ended 03/31/2014
Net asset value returns		6 months		1 year		5 years		10 years
Fort Dearborn Income Securities, Inc.		4.61%		0.89%		10.69%		6.31%
Lipper Corporate Debt Funds BBB-Rated median		3.80%		0.90%		10.74%		5.64%
Market price returns
Fort Dearborn Income Securities, Inc.		8.01%		(0.50)%		10.69%		6.86%
Lipper Corporate Debt Funds BBB-Rated median		7.38%		(3.57)%		6.12%		4.89%
Index returns
FDI Fund Index1,4		1.70%		(0.58)%		9.71%		5.93%
Barclays US Aggregate Index2,4		1.70%		(0.10)%		4.80%		4.46%
Investment Grade Bond Index3		5.36%		(0.02)%		9.83%		5.99%

 

 

Past performance does not predict future performance. The return and value of an investment will fluctuate so that an investor’s shares, when sold, may be worth more or less than their original cost. The Fund’s net asset value (“NAV”) returns assume, for illustration only, that dividends and other distributions, if any, were reinvested at the NAV on the payable dates. The Fund’s market price returns assume that all dividends and other distributions, if any, were reinvested at prices obtained under the Fund’s Dividend Reinvestment Plan. NAV and market price returns for the period of less than one year have not been annualized. Returns do not reflect the deduction of taxes that a shareholder would pay on Fund dividends and other distributions, if any, or the sale of Fund shares.

Lipper peer group data calculated by Lipper Inc.; used with permission. The Lipper median is the return of the fund that places in the middle of the peer group. Lipper classifies the Fund in its “Corporate Debt Funds BBB-Rated” category, which includes non-leveraged closed-end funds that invest primarily in corporate and government debt issues rated in the top four grades.

Performance information reflects the deduction of the Fund’s fees and expenses, as indicated in the Statement of operations included in its shareholder reports, such as investment advisory and administration fees, custody fees, exchange listing fees, etc. It does not reflect any transaction charges that a shareholder may incur when (s)he buys or sells shares (e.g., a shareholder’s brokerage commissions).

Investing in the Fund entails specific risks, such as interest rate, credit and US government securities risks. Further detailed information regarding the Fund, including a discussion of investment objectives, principal investment strategies and principal risks, may be found in the fund overview located at http://www.ubs.com/closedendfundsinfo. You may also request copies of the fund overview by calling the Closed-End Funds Desk at 888-793 8637.

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Fort Dearborn Income Securities, Inc.

Portfolio statistics (unaudited)

Characteristics1	03/31/14			09/30/13			03/31/13
Net asset value	$15.95			$15.89			$16.83
Market price	$14.41			$13.96			$15.53
12-month dividends/distributions	$0.9900			$1.5230			$1.5230
Dividend/distribution at period-end	$0.1500			$0.1750			$0.1750
Net assets (mm)	$140.0			$139.4			$147.7
Weighted average maturity (yrs.)	8.8			8.1			15.5
Duration (yrs.)2	4.6			5.6			9.0

Credit quality3	03/31/14			09/30/13			03/31/13
AAA	—	%		—	%		0.4	%
US Treasury4	0.2			2.2			11.1
US Agency4,5	3.0			3.1			4.7
AA	2.5			5.6			6.0
A	10.9			17.4			30.0
BBB	58.4			48.8			36.6
BB	12.4			10.3			7.2
B	2.3			2.8			1.1
CCC and Below	0.6			0.7			0.8
Non-rated	8.0			4.8			0.4
Cash equivalents	1.1			2.2			0.9
Other assets, less liabilities	0.6			2.1			0.8
Total	100.0	%		100.0	%		100.0	%

 

 

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Fort Dearborn Income Securities, Inc.

Industry diversification (unaudited)
As a percentage of net assets as of March 31, 2014
Bonds
Corporate bonds
Automobiles		1.56	%
Building products		0.08
Capital markets		3.22
Chemicals		2.91
Commercial banks		17.59
Commercial services & supplies		0.72
Communications equipment		0.40
Computers & peripherals		0.77
Construction materials		1.07
Consumer finance		1.86
Containers & packaging		0.32
Diversified financial services		9.49
Diversified telecommunication services		2.23
Electric utilities		0.58
Electronic equipment, instruments & components		1.04
Energy equipment & services		1.12
Food & staples retailing		0.57
Gas utilities		0.61
Health care providers & services		0.46
Hotels, restaurants & leisure		0.85
Insurance		6.56
IT services		0.45
Leisure equipment & products		0.16
Life sciences tools & services		0.11
Machinery		1.26
Media		2.80
Metals & mining		3.19
Oil, gas & consumable fuels		10.76
Paper & forest products		1.22
Pharmaceuticals		0.09
Real estate investment trust (REIT)		0.68
Tobacco		2.75
Trading companies & distributors		1.45
Wireless telecommunication services		0.49
Total corporate bonds		79.42	%
Asset-backed securities		3.17
Commercial mortgage-backed securities		7.78
Mortgage & agency debt securities		3.66
Municipal bonds		2.61
US government obligation		0.15
Non-US government obligations		1.40
Total bonds		98.19	%
Common stock		0.06
Preferred stocks		0.09
Short-term investment		1.07
Options purchased		0.01
Total investments		99.42	%
Cash and other assets, less liabilities		0.58
Net assets		100.00	%

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Fort Dearborn Income Securities, Inc.
Portfolio of investments

March 31, 2014 (unaudited)

		Face
		amount			Value
Bonds—98.19%
Corporate bonds—79.42%
Brazil—2.97%
Caixa Economica Federal,
2.375%, due 11/06/171		$	1,400,000		$	1,351,000
Petrobras Global Finance BV,
6.250%, due 03/17/24			400,000			410,280
Petrobras International Finance Co.,
5.375%, due 01/27/21			1,130,000			1,134,147
6.875%, due 01/20/40			1,275,000			1,260,975
Total Brazil corporate bonds						4,156,402
Canada—0.49%
EnCana Corp.,
6.625%, due 08/15/37			250,000			297,615
Teck Resources Ltd.,
6.250%, due 07/15/41			375,000			387,158
Total Canada corporate bonds						684,773
Cayman Islands—2.93%
Seagate HDD Cayman,
3.750%, due 11/15/181			1,050,000			1,081,500
Transocean, Inc.,
6.800%, due 03/15/38			835,000			900,762
7.500%, due 04/15/31			575,000			663,793
Vale Overseas Ltd.,
4.375%, due 01/11/22			1,465,000			1,458,803
Total Cayman Islands corporate bonds						4,104,858
China—0.20%
China Oil & Gas Group Ltd.,
5.250%, due 04/25/181			280,000			281,400
Curacao—0.09%
Teva Pharmaceutical Finance IV BV,
3.650%, due 11/10/21			125,000			125,208
France—0.59%
Orange SA,
9.000%, due 03/01/31			575,000			831,534
Luxembourg—0.64%
Intelsat Jackson Holdings SA,
7.500%, due 04/01/21			500,000			548,750
Telecom Italia Capital SA,
6.375%, due 11/15/33			350,000			342,125
Total Luxembourg corporate bonds						890,875
Mexico—3.24%
America Movil SAB de CV,
5.000%, due 03/30/20			625,000			685,750
Cemex SAB de CV,
9.000%, due 01/11/181			1,370,000			1,493,300
Petroleos Mexicanos,
3.500%, due 01/30/23			1,450,000			1,367,350
6.375%, due 01/23/451			500,000			541,000
6.500%, due 06/02/41			410,000			448,540
Total Mexico corporate bonds						4,535,940
Netherlands—2.68%
Basell Finance Co. BV,
8.100%, due 03/15/271			1,425,000			1,859,279
EDP Finance BV,
4.900%, due 10/01/191			1,000,000			1,045,000
6.000%, due 02/02/181			350,000			379,750
LYB International Finance BV,
4.875%, due 03/15/44			470,000			469,151
Total Netherlands corporate bonds						3,753,180
Norway—1.60%
Eksportfinans ASA,
5.500%, due 05/25/16			620,000			654,100
5.500%, due 06/26/17			1,500,000			1,591,875
Total Norway corporate bonds						2,245,975
Singapore—0.22%
Flextronics International Ltd.,
5.000%, due 02/15/23			300,000			303,000
Spain—1.99%
BBVA US Senior SAU,
4.664%, due 10/09/15			1,700,000			1,785,342
Telefonica Emisiones SAU,
3.192%, due 04/27/18			970,000			993,465
Total Spain corporate bonds						2,778,807
Sweden—0.92%
Nordea Bank AB,
4.875%, due 05/13/211			1,230,000			1,290,147
United Kingdom—5.22%
Barclays Bank PLC,
5.140%, due 10/14/20			1,110,000			1,176,745
6.050%, due 12/04/171			1,500,000			1,681,119
Lloyds TSB Bank PLC,
6.500%, due 09/14/201			2,300,000			2,627,870
Royal Bank of Scotland Group PLC,
6.100%, due 06/10/23			1,760,000			1,826,913
Total United Kingdom corporate bonds						7,312,647

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Fort Dearborn Income Securities, Inc.

Portfolio of investments

March 31, 2014 (unaudited)

		Face amount			Value
Bonds—(Continued)
Corporate bonds—(Continued)
United States—55.64%
21st Century Fox America, Inc.,
7.750%, due 12/01/45		$	350,000		$	485,292
ADT Corp.,
3.500%, due 07/15/22			1,140,000			1,002,083
AEP Texas Central Co.,
Series E, 6.650%, due 02/15/33			495,000			611,580
Allstate Corp.,
5.750%, due 08/15/532			1,000,000			1,050,000
Ally Financial, Inc.,
4.078%, due 06/15/153			1,150,000			1,114,062
8.300%, due 02/12/15			550,000			581,625
Altria Group, Inc.,
5.375%, due 01/31/44			850,000			888,585
9.950%, due 11/10/38			750,000			1,203,361
Anadarko Holding Co.,
7.500%, due 10/15/26			1,354,000			1,586,869
AT&T, Inc.,
4.300%, due 12/15/42			26,000			23,038
Avery Point CLO, Ltd.,
Series 2014-1A, Class C,
3.329%, due 06/01/152,4,5			450,000			450,000
AXA Financial, Inc.,
7.000%, due 04/01/28			165,000			189,212
Bank of America Corp.,
6.110%, due 01/29/37			2,000,000			2,236,752
7.750%, due 05/14/38			1,000,000			1,318,622
Barrick North America Finance LLC,
5.750%, due 05/01/43			1,450,000			1,412,767
Boston Properties LP, REIT,
3.800%, due 02/01/24			430,000			426,348
Case New Holland, Inc.,
7.875%, due 12/01/17			1,500,000			1,758,750
CenturyLink, Inc.,
Series P, 7.600%, due 09/15/39			200,000			190,250
CF Industries, Inc.,
4.950%, due 06/01/43			1,500,000			1,457,944
Citigroup, Inc.,
Series D, 5.350%, due 05/15/232,6			2,130,000			1,975,575
8.125%, due 07/15/39			1,435,000			2,075,449
DISH DBS Corp.,
7.875%, due 09/01/19			1,300,000			1,537,250
El Paso Corp.,
6.500%, due 09/15/20			300,000			329,187
7.250%, due 06/01/18			300,000			341,276
Energy Transfer Partners LP,
5.200%, due 02/01/22			500,000			539,754
9.000%, due 04/15/19			900,000			1,129,373
ERP Operating LP, REIT,
4.750%, due 07/15/20			485,000			531,186
Fidelity National Financial, Inc.,
5.500%, due 09/01/22			700,000			745,291
Ford Motor Co.,
7.450%, due 07/16/31			1,700,000			2,181,306
Freeport-McMoRan Copper        & Gold, Inc.,
3.550%, due 03/01/22			200,000			191,004
General Electric Capital Corp.,
Series C, 5.250%, due 06/15/232,6			2,650,000			2,577,655
General Motors Financial Co., Inc.,
4.750%, due 08/15/17			850,000			908,437
Genworth Holdings, Inc.,
7.625%, due 09/24/21			900,000			1,108,700
Georgia-Pacific LLC,
8.000%, due 01/15/24			1,300,000			1,708,264
Goldman Sachs Group, Inc.,
5.750%, due 01/24/22			1,355,000			1,536,460
6.750%, due 10/01/37			570,000			652,946
Harris Corp.,
6.375%, due 06/15/19			200,000			230,895
Hasbro, Inc.,
6.350%, due 03/15/40			200,000			224,655
HCA, Inc.,
7.875%, due 02/15/20			600,000			638,700
HSBC Bank USA N.A.,
4.875%, due 08/24/20			250,000			271,442
International Lease Finance Corp.,
7.125%, due 09/01/181			1,750,000			2,034,375
JPMorgan Chase & Co.,
3.375%, due 05/01/23			360,000			340,783
Series 1, 7.900%, due 04/30/182,6			4,600,000			5,198,000
Kinder Morgan Energy Partners LP,
5.800%, due 03/15/35			710,000			754,006
6.500%, due 09/01/39			75,000			85,129
Kroger Co.,
6.900%, due 04/15/38			650,000			805,152
Liberty Mutual Group, Inc.,
4.250%, due 06/15/231			1,000,000			1,014,846
Life Technologies Corp.,
6.000%, due 03/01/20			135,000			155,352
Massachusetts Mutual Life        Insurance Co.,
8.875%, due 06/01/391			275,000			418,217
MetLife, Inc.,
6.400%, due 12/15/36			1,130,000			1,192,150
Morgan Stanley,
4.100%, due 05/22/23			1,000,000			989,863
Series F, 5.625%, due 09/23/19			1,175,000			1,336,472

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Fort Dearborn Income Securities, Inc.

Portfolio of investments

March 31, 2014 (unaudited)

		Face amount			Value
Bonds—(Continued)
Corporate bonds—(Concluded)
United States—(Concluded)
Motorola Solutions, Inc.,
3.500%, due 03/01/23		$	350,000		$	334,588
NextEra Energy Capital Holdings, Inc.,
6.650%, due 06/15/672			200,000			201,500
ONEOK Partners LP,
8.625%, due 03/01/19			215,000			269,483
Owens Corning,
6.500%, due 12/01/16			97,000			107,110
Phillips 66,
4.300%, due 04/01/22			225,000			237,870
Plains Exploration & Production Co.,
6.500%, due 11/15/20			830,000			914,037
6.875%, due 02/15/23			950,000			1,056,875
PNC Financial Services Group, Inc.,
4.454%, due 05/02/142,6			1,000,000			1,003,000
Series R, 4.850%, due 06/01/232,6			1,000,000			937,500
Prudential Financial, Inc.,
5.200%, due 03/15/442			2,305,000			2,287,713
Series B, 5.750%, due 07/15/33			40,000			44,979
Regions Bank,
7.500%, due 05/15/18			1,850,000			2,183,351
Reynolds American, Inc.,
6.150%, due 09/15/43			100,000			112,824
7.250%, due 06/15/37			1,325,000			1,641,617
Sanmina-SCI Corp.,
7.000%, due 05/15/191			1,090,000			1,154,038
Southern Copper Corp.,
3.500%, due 11/08/22			800,000			760,226
6.750%, due 04/16/40			250,000			255,995
Southern Natural Gas Co.,
8.000%, due 03/01/32			430,000			568,820
Sprint Capital Corp.,
6.875%, due 11/15/28			200,000			194,000
SunTrust Bank,
7.250%, due 03/15/18			495,000			581,342
Tesoro Corp.,
9.750%, due 06/01/19			370,000			393,828
Time Warner Cable, Inc.,
7.300%, due 07/01/38			600,000			749,609
8.750%, due 02/14/19			910,000			1,151,171
US Bancorp,
2.950%, due 07/15/22			150,000			144,271
Valero Energy Corp.,
7.500%, due 04/15/32			465,000			595,177
Valspar Corp.,
4.200%, due 01/15/22			275,000			281,703
Wells Fargo Capital X,
5.950%, due 12/15/36			1,475,000			1,475,000
Williams Cos., Inc.,
8.750%, due 03/15/32			177,000			213,378
Williams Partners LP,
6.300%, due 04/15/40			1,025,000			1,164,705
Wyndham Worldwide Corp.,
3.900%, due 03/01/23			1,210,000			1,185,468
Xerox Corp.,
6.350%, due 05/15/18			540,000			624,001
XL Group PLC,
Series E, 6.500%, due 04/15/172,6			1,350,000			1,328,063
Total United States corporate bonds						77,899,532
Total corporate bonds        (cost $107,458,589)						111,194,278
Asset-backed securities—3.17%
Cayman Islands—2.69%
CIFC Funding Ltd.,
Series 2014-1A, Class C,
2.958%, due 04/18/251,2			750,000			740,325
Dryden Senior Loan Fund,
Series 2014-31A, Class C,
3.120%, due 04/18/261,2			800,000			794,400
Goldentree Loan Opportunities VIII        Ltd., Series 2014-8A, Class D,
3.776%, due 04/19/261,2,4,5			550,000			540,375
Halcyon Loan Advisors Funding Ltd.,
Series 2014-1A, Class C,
3.278%, due 04/18/261,2			850,000			841,925
JFIN CLO Ltd.,
Series 2014-1A, Class C,
3.234%, due 04/21/251,2			450,000			439,650
Octagon Investment Partners XIX Ltd.,
Series 2014-1A, Class C,
3.083%, due 04/15/261,2			420,000			414,364
						3,771,039
United States—0.48%
Capital Auto Receivables Asset Trust,
Series 2014-1, Class D,
3.390%, due 07/22/19			375,000			375,286
Continental Airlines, Inc.,
Series 2009-2, Class A,
7.250%, due 11/10/19			247,823			289,953
						665,239
Total asset-backed securities        (cost $4,391,582)						4,436,278

10

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Fort Dearborn Income Securities, Inc.

Portfolio of investments

March 31, 2014 (unaudited)

		Face amount			Value
Bonds—(Continued)
Commercial mortgage-backed securities—7.78%
United States—7.78%
Americold 2010 LLC Trust,
Series 2010-ARTA, Class D,
7.443%, due 01/14/291		$	440,000		$	493,756
BAMLL Commercial Mortgage        Securities Trust,
Series 2013-DSNY, Class E,
2.755%, due 09/15/261,2			1,000,000			1,005,024
Banc of America Commercial        Mortgage, Inc.,
Series 2007-2, Class AM,
5.611%, due 04/10/492			475,000			524,872
Boca Hotel Portfolio Trust,
Series 2013-BOCA, Class D,
3.205%, due 08/15/261,2			1,000,000			1,001,347
Commercial Mortgage Pass        Through Certificates,
Series 2013-THL, Class D,
2.805%, due 06/08/301,2			1,500,000			1,505,002
Series 2013-FL3, Class MMHP,
3.755%, due 10/13/281,2			900,000			913,448
FREMF Mortgage Trust,
Series 2013-KF02, Class B,
2.820%, due 12/25/451,2			771,820			786,558
GS Mortgage Securities Corp. II,
Series 2013-KYO, Class D,
2.757%, due 11/08/291,2			515,000			522,172
JP Morgan Chase Commercial        Mortgage Securities Trust,
Series 2013-JWRZ, Class D,
3.145%, due 04/15/301,2			1,000,000			1,000,196
Madison Avenue Trust,
Series 2013-650M, Class D,
4.034%, due 10/12/321,2			500,000			492,097
Morgan Stanley Re-REMIC Trust,
Series 2009-GG10, Class A4B,
5.819%, due 08/12/451,2			1,000,000			1,100,461
NLY Commercial Mortgage Trust,
Series 2014-FL1, Class B,
1.905%, due 11/15/301,2			625,000			626,179
Wells Fargo Commercial        Mortgage Trust,
Series 2013-120B, Class C,
2.710%, due 03/18/281,2			1,000,000			923,787
Total commercial        mortgage-backed securities        (cost $10,648,292)						10,894,899
Mortgage & agency debt securities—3.66%
United States—3.66%
Federal Home Loan Mortgage Corp.        Gold Pools,7
#E01127, 6.500%, due 02/01/17			16,718			17,590
Federal Home Loan Mortgage Corp.        REMIC, IO,7
3.500%, due 10/15/42			2,634,298			609,613
Federal National Mortgage        Association Pools,7
#AE1568, 4.000%, due 09/01/40			392,999			408,452
#688066, 5.500%, due 03/01/33			91,450			102,023
#793666, 5.500%, due 09/01/34			372,384			413,528
#802481, 5.500%, due 11/01/34			82,437			91,518
#596124, 6.000%, due 11/01/28			85,445			96,378
Federal National Mortgage        Association REMIC, IO,7
Series 2013-15, Class IO,
2.500%, due 03/25/28			3,707,165			357,868
Series 2013-87, Class IW,
2.500%, due 06/25/28			5,443,340			595,071
Series 2013-64, Class LI,
3.000%, due 06/25/33			3,766,116			589,232
Series 2011-91, Class EI,
3.500%, due 08/25/26			3,420,876			391,955
Government National Mortgage        Association Pools,
#781029, 6.500%, due 05/15/29			23,406			27,011
Government National Mortgage        Association, IO,
Series 2013-53, Class OI,
3.500%, due 04/20/43			2,766,435			538,418
GSR Mortgage Loan Trust,
Series 2006-2F, Class 3A4,
6.000%, due 02/25/36			933,115			888,337
Total mortgage & agency        debt securities        (cost $5,088,389)						5,126,994
Municipal bonds—2.61%
Illinois—2.21%
State of Illinois, GO,
5.100%, due 06/01/33			1,350,000			1,332,922
5.665%, due 03/01/18			710,000			767,901
5.877%, due 03/01/19			885,000			992,572
						3,093,395
New Jersey—0.14%
New Jersey State Turnpike Authority        Revenue Bonds,
Series F, 7.414%, due 01/01/40			140,000			196,537

11

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Fort Dearborn Income Securities, Inc.

Portfolio of investments

March 31, 2014 (unaudited)

		Face amount			Value
Bonds—(Concluded)
Municipal bonds—(Concluded)
Tennessee—0.26%
Metropolitan Government of Nashville        & Davidson County Convention
Center Authority Revenue Bonds,
6.731%, due 07/01/43		$	300,000		$	356,949
Total municipal bonds        (cost $3,409,606)						3,646,881
US government obligation—0.15%
US Treasury Note,        1.250%, due 09/30/15        (cost $202,790)			200,000			203,039
Non-US government obligations—1.40%
Brazil—1.40%
Banco Nacional de Desenvolvimento        Economico e Social,
3.375%, due 09/26/161			750,000			764,063
Brazilian Government        International Bond,
8.250%, due 01/20/34			900,000			1,194,750
Total Non-US government obligations        (cost $1,790,512)						1,958,813
Total bonds        (cost $132,989,760)						137,461,182
		Shares
Common stock—0.06%
United States—0.06%
WMI Holdings Corp.*        (cost $14,158)			25,741			83,658
Preferred stocks—0.09%
United States—0.09%
Ally Financial, Inc.,
7.000%, due on 06/02/141,6			42			41,483
JPMorgan Chase & Co.,
5.450%, due on 03/01/18*6			4,000			86,800
Total preferred stocks        (cost $136,713)						128,283
Short-term investment—1.07%
Investment company—1.07%
UBS Cash Management Prime        Relationship Fund8        (cost $1,498,368)			1,498,368			1,498,368
		Number of contracts
Options purchased—0.01%
Put options—0.01%
3 Year Euro-Dollar Midcurve,        strike @ USD 99.6250,        expires April 2014			621			3,881
30 Year US Treasury Bonds,        strike @ USD 130.0000,        expires May 2014			25			11,719
Total options purchased        (cost $43,888)						15,600
Total investments—99.42%        (cost $134,682,887)						139,187,091
Cash and other assets,        less liabilities—0.58%						813,147
Net assets—100.00%					$	140,000,238

12

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Fort Dearborn Income Securities, Inc.

Portfolio of investments

March 31, 2014 (unaudited)

Notes to portfolio of investments
Aggregate cost for federal income tax purposes was substantially the same as for book purposes; and net unrealized appreciation consisted of:

Gross unrealized appreciation	$	5,244,489
Gross unrealized depreciation		(740,285	)
Net unrealized appreciation of investments	$	4,504,204

For a listing of defined portfolio acronyms, counterparty abbreviations and currency abbreviations that are used throughout the Portfolio of investments as well as the tables that follow, please refer to page 16. Portfolio footnotes begin on page 15.

Futures contracts

		Expiration date		Cost/ (proceeds)				Value				Unrealized appreciation/ (depreciation)
US Treasury futures buy contracts:
US Ultra Bond, 42 contracts (USD)		June 2014		$	6,015,484			$	6,067,687				$	52,203
10 Year US Treasury Notes, 30 contracts (USD)		June 2014			3,724,504				3,705,000					(19,504	)
US Treasury futures sell contracts:
US Long Bond, 147 contracts (USD)		June 2014			(19,418,015	)			(19,583,156	)				(165,141	)
10 Year US Treasury Notes, 122 contracts (USD)		June 2014			(15,135,290	)			(15,067,000	)				68,290
Interest rate futures sell contracts:
90 Day Euro-Dollar Time Deposit, 99 contracts (USD)		December 2016			(24,245,991	)			(24,174,562	)				71,429
Net unrealized appreciation on futures contracts													$	7,277

Credit default swap on credit indices — sell protection⁹

Counterparty

Referenced Index10

Notional amount

Termination date

Payments received by the Fund11

Upfront payments received

Value

Unrealized depreciation

Credit spread12

BOA

CMBX.NA.BBB. Series 6 Index

USD 7,000,000

05/11/63

3.000%

$84,465

$(101,518)

$(17,053)

3.201%

Options written

		Expiration date		Premiums received					Value
Call options
30 Year US Treasury Bonds, 25 contracts, strike @ USD 133.0000		May 2014			$	22,221			$	(41,406	)
Put options
3 Year Euro-Dollar Midcurve, 621 contracts, strike @ USD 99.5000		April 2014				5,589				(3,881	)
Options written on credit default swaps on credit indices5
If option exercised payment from the counterparty will be received upon the occurrence of a failure to pay, obligation acceleration, repudiation or restructuring of the referenced obligation specified in the CDX.NA.HY Series 21 Index and Fund pays quarterly fixed rate of 5.000% per annum. Underlying credit default swap terminating 12/20/18. European style. Counterparty: BOA, Notional Amount USD 7,000,000.		June 2014				31,850				(40,143	)
Total options written					$	59,660			$	(85,430	)

13

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Fort Dearborn Income Securities, Inc.

Portfolio of investments

March 31, 2014 (unaudited)

Written options activity for the period ended March 31, 2014 was as follows:

		Number of contracts					Premiums received
Options outstanding at September 30, 2013			—					$	—
Options written			671						54,329
Options terminated in closing purchase transactions			(25	)					(26,519	)
Options expired prior to exercise			—						—
Options outstanding at March 31, 2014			646					$	27,810
Written swaptions activity for the period ended March 31, 2014 was as follows:
							Premiums received
Swaptions outstanding at September 30, 2013								$	—
Swaptions written									31,850
Swaptions terminated in closing purchase transactions									—
Swaptions expired prior to exercise									—
Swaptions outstanding at March 31, 2014								$	31,850

The following is a summary of the fair valuations according to the inputs used as of March 31, 2014 in valuing the Fund’s investments:

Assets		Unadjusted quoted prices in active markets for identical investments Level 1				Other significant observable inputs Level 2				Unobservable inputs Level 3					Total
Description:
Corporate bonds		$	—			$	110,744,278				$	450,000			$	111,194,278
Asset-backed securities			—				3,895,903					540,375				4,436,278
Commercial mortgage-backed securities			—				10,894,899					—				10,894,899
Mortgage & agency debt securities			—				5,126,994					—				5,126,994
Municipal bonds			—				3,646,881					—				3,646,881
US government obligation			—				203,039					—				203,039
Non-US government obligations			—				1,958,813					—				1,958,813
Common stock			83,658				—					—				83,658
Preferred stocks			86,800				41,483					—				128,283
Short-term investment			—				1,498,368					—				1,498,368
Options purchased			15,600				—					—				15,600
Futures contracts			191,922				—					—				191,922
Total		$	377,980			$	138,010,658				$	990,375			$	139,379,013
Liabilities		Level 1					Level 2				Level 3				Total
Description:
Futures contracts		$	(184,645	)		$	—				$	—			$	(184,645	)
Options written			(45,287	)			(40,143	)				—				(85,430	)
Swap agreement			—				(101,518	)				—				(101,518	)
Total		$	(229,932	)		$	(141,661	)			$	—			$	(371,593	)

At March 31, 2014, there were no transfers between Level 1 and Level 2.

14

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Fort Dearborn Income Securities, Inc.

Portfolio of investments

March 31, 2014 (unaudited)

Level 3 rollforward disclosure

The following is a rollforward of the Fund’s investments that were valued using unobservable inputs for the period:

Assets		Corporate bonds					Asset-backed securities					Total
Beginning balance			$	—				$	—				$	—
Purchases				450,000					540,375					990,375
Issuances				—					—					—
Sales				—					—					—
Accrued discounts (premiums)				—					—					—
Total realized gain				—					—					—
Change in net unrealized appreciation/depreciation				—					—					—
Transfers into Level 3				—					—					—
Transfers out of Level 3				—					—					—
Ending balance			$	450,000				$	540,375				$	990,375

Portfolio footnotes

*	Non-income producing security.
1	Security exempt from registration pursuant to Rule 144A under the Securities Act of 1933. These securities are considered liquid, unless noted otherwise, and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At March 31, 2014, the value of these securities amounted to $33,199,453 or 23.71% of net assets.
2	Variable or floating rate security — The interest rate shown is the current rate as of March 31, 2014 and changes periodically.
3	Rate shown reflects annualized yield at March 31, 2014 on zero coupon bond.
4	Security is being fair valued by a valuation committee under the direction of the Board of Directors. At March 31, 2014, the value of these securities amounted to $990,375 or 0.71% of net assets.
5	Illiquid investment as of March 31, 2014.
6	Perpetual investment. Date shown reflects the next call date.
7	On September 7, 2008, the Federal Housing Finance Agency placed the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association into conservatorship, and the US Treasury guaranteed the debt issued by those organizations.
8	The table below details the Fund’s investment in a fund advised by the same advisor as the Fund. The advisor does not earn a management fee from the affiliated UBS Relationship Fund.

Security description		Value 09/30/13		Purchases during the six months ended 03/31/14		Sales during the six months ended 03/31/14		Value 03/31/14		Income earned from affiliate for the six months ended 03/31/14
UBS Cash Management Prime Relationship Fund		$3,063,384		$26,621,401		$28,186,417		$1,498,368		$1,480

9	If the Fund is a seller of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either (i) pay to the buyer of protection an amount equal to the notional amount of the swap and take delivery of the underlying securities comprising the referenced index or (ii) pay a net settlement amount in the form of cash or securities equal to the notional amount of the swap agreement less the recovery value of the underlying securities comprising the referenced index.
10	Payments from/to the counterparty will be received/made upon the occurrence of bankruptcy and/or restructuring event with respect to the referenced index.
11	Payments made or received are based on the notional amount.

15

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Fort Dearborn Income Securities, Inc.

Portfolio of investments

March 31, 2014 (unaudited)

12

Credit spreads, represented in absolute terms, utilized in determining the market value as of period end serve as an indicator of the current status of the payment/performance risk and represent the likelihood or risk of default or other credit event occurring for the credit derivative. The credit spread of a particular referenced entity reflects the cost of buying/selling protection and may include upfront payments required to be made to enter into the agreement. Wider credit spreads represent a deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement. A credit spread identified as “Defaulted” indicates a credit event has occurred for the referenced entity.

Portfolio acronyms

CLO	Collateralized loan obligations
GO	General Obligation
GS	Goldman Sachs
GSR	Goldman Sachs Residential
IO	Interest only — this security entitles the holder to receive interest payments from an underlying pool of mortgages. The risk associated with this security is related to the speed of the principal paydowns. High prepayments would result in a smaller amount of interest being received and cause the yield to decrease. Low prepayments would result in a greater amount of interest being received and cause the yield to increase.
REIT	Real Estate Investment Trust
REMIC	Real Estate Mortgage Investment Conduit
Re-REMIC	Combined Real Estate Mortgage Investment Conduit

Counterparty abbreviation

BOA	Bank of America

Currency abbreviation

USD	United States Dollar

16	See accompanying notes to financial statements

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Fort Dearborn Income Securities, Inc.

Financial statements

Statement of assets and liabilities
March 31, 2014 (unaudited)

Assets:
Investments in securities of unaffiliated issuers, at value (cost—$133,184,519)	$	137,688,723
Investment in affiliated issuer, at value (cost—$1,498,368)		1,498,368
Total investments, at value (cost—$134,682,887)	$	139,187,091
Interest receivable		1,761,244
Dividends		178
Receivable for investments sold		1,607,585
Variation margin on futures contracts		7,277
Due from broker for futures contracts		254,838
Cash collateral for futures contracts		471,025
Other assets		26,361
Total assets		143,315,599
Liabilities:
Payable for investments purchased		2,903,624
Payable for investment advisory fees		162,960
Outstanding swap agreement, at value1		101,518
Options written, at value (premiums received—$59,660)		85,430
Due to custodian		15,564
Directors’ fees payable		8,476
Accrued expenses and other liabilities		37,789
Total liabilities		3,315,361
Net assets:
Capital stock—$0.01 par value; 12,000,000 shares authorized; 8,775,665 shares issued and outstanding	$	135,116,083
Distributions in excess of net investment income		(356,871	)
Accumulated net realized gain		772,368
Net unrealized appreciation		4,468,658
Net assets	$	140,000,238
Net asset value per share		$15.95

¹ Net upfront payments received by the Fund on outstanding swap agreement amounted to $84,465.

See accompanying notes to financial statements

17

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Fort Dearborn Income Securities, Inc.

Financial statements

Statement of operations
For the six months ended March 31, 2014 (unaudited)

Investment income:
Interest income		$	3,113,634
Dividends			4,219
Affiliated income			1,480
Total income			3,119,333
Expenses:
Investment advisory fees			329,271
Professional fees			130,247
Reports and notices to shareholders			62,508
Custody and accounting fees			29,161
Transfer agency fees			21,609
Directors’ fees			16,891
Listing fees			11,842
Insurance expense			6,122
Franchise taxes			5,735
Other expenses			11,454
Total expenses			624,840
Net investment income			2,494,493
Realized and unrealized gains (losses) from investment activities:
Net realized gain (loss) on:
Investments			1,076,995
Futures contracts			(336,038	)
Options written			15,538
Swap agreements			16,333
Change in net unrealized appreciation/depreciation on:
Investments			2,968,961
Futures contracts			7,277
Options written			(25,770	)
Swap agreements			(17,053	)
Net realized and unrealized gain from investment activities			3,706,243
Net increase in net assets resulting from operations		$	6,200,736

18	See accompanying notes to financial statements

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Fort Dearborn Income Securities, Inc.
Financial statements

Statement of changes in net assets

		For the six months ended March 31, 2014 (unaudited)					For the year ended September 30, 2013
From operations:
Net investment income			$2,494,493						$5,279,204
Net realized gain			772,828						3,666,282
Change in net unrealized appreciation/depreciation			2,933,415						(12,955,305	)
Net increase (decrease) in net assets resulting from operations			6,200,736						(4,009,819	)
Dividends and distributions to shareholders from:
Net investment income			(2,852,091	)					(6,142,966	)
Net realized gains			(2,764,335	)					(7,222,372	)
Total dividends and distributions to shareholders			(5,616,426	)					(13,365,338	)
Net increase (decrease) in net assets			584,310						(17,375,157	)
Net assets:
Beginning of period			139,415,928						156,791,085
End of period		$	140,000,238					$	139,415,928
Accumulated undistributed/(distributions in excess of) net investment income			$(356,871	)	1				$727

1

The actual sources of the Fund’s fiscal year 2014 dividends/distributions may be net investment income, net realized capital gains, return of capital or a combination of the foregoing and may be subject to retroactive recharacterization at the end of the Fund’s fiscal year based on tax regulations. Shareholders will be informed of the tax characteristics of dividends/distributions after the close of the 2014 fiscal year.

See accompanying notes to financial statements

19

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Fort Dearborn Income Securities, Inc.
Financial highlights

Selected data for a share of common stock outstanding throughout each period is presented below:

		For the six months ended March 31, 2014 (unaudited)						For the years ended September 30,
								2013				2012				2011				2010				2009
Net asset value, beginning of period				$15.89					$17.87				$17.29				$17.35				$16.50				$13.81
Net investment income1				0.28					0.60				0.67				0.75				0.81				0.78
Net realized and unrealized gains (losses)				0.43					(1.06	)			1.34				0.54				1.23				2.63
Net increase (decrease) from operations				0.71					(0.46	)			2.01				1.29				2.04				3.41
Dividends from net investment income2				(0.33	)				(0.70	)			(0.71	)			(0.92	)			(0.90	)			(0.71	)
Distributions from net realized gains2				(0.32	)				(0.82	)			(0.72	)			(0.43	)			(0.29	)			(0.01	)
Total dividends and distributions				(0.65	)				(1.52	)			(1.43	)			(1.35	)			(1.19	)			(0.72	)
Net asset value, end of period				$15.95					$15.89				$17.87				$17.29				$17.35				$16.50
Market price, end of period				$14.41					$13.96				$17.20				$16.07				$16.15				$14.85
Total net asset value return3				4.61	%				(2.82	)%			12.23	%			8.10	%			12.98	%			25.29	%
Total market price return4				8.01	%				(10.77	)%			16.81	%			8.59	%			17.71	%			21.08	%
Ratios to average net assets:
Expenses				0.89	%5				0.71	%			0.67	%			0.70	%			0.70	%			0.85	%
Net investment income				3.57	%5				3.56	%			3.89	%			4.50	%			4.91	%			5.35	%
Supplemental data:
Net assets, end of period (000’s)			$	140,000				$	139,416			$	156,791			$	151,695			$	152,241			$	144,773
Portfolio turnover rate				27	%				133	%			175	%			154	%			101	%			117	%
Number of shares outstanding at end of year (000’s)				8,776					8,776				8,776				8,776				8,776				8,776

1	Calculated using the average shares method.
2	The actual sources of the Fund’s fiscal year 2014 dividends/distributions may be net investment income, net realized capital gains, return of capital or a combination of the foregoing and may be subject to retroactive recharacterization at the end of the Fund’s fiscal year based on tax regulations. Shareholders will be informed of the tax characteristics of dividends/distributions after the close of the 2014 fiscal year.
3	Total net asset value return is calculated assuming a $10,000 purchase of common stock at the current net asset value on the first day of each period reported and a sale at the current net asset value on the last day of each period reported, and assuming reinvestment of dividends and other distributions at the net asset value on the payable dates. Total net asset value return does not reflect the deduction of taxes that a shareholder would pay on Fund dividends/distributions or a sale of Fund shares. Total return based on net asset value is hypothetical as investors cannot purchase or sell Fund shares at the net asset value but only at market prices. Total net asset value return for the period of less than one year has not been annualized.
4	Total market price return is calculated assuming a $10,000 purchase of common stock at the current market price on the first day of each period reported and a sale at the current market price on the last day of each period reported, and assuming reinvestment of dividends and other distributions at prices obtained under the Fund’s Dividend Reinvestment Plan. Total market price return does not reflect brokerage commissions or the deduction of taxes that a shareholder would pay on Fund dividends/distributions or a sale of Fund shares. Total market price return for the period of less than one year has not been annualized.
5	Annualized.

20	See accompanying notes to financial statements

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Fort Dearborn Income Securities, Inc.
Notes to financial statements—March 31, 2014 (unaudited)

Organization and significant accounting policies
Fort Dearborn Income Securities, Inc. (the “Fund”) is registered under the Investment Company Act of 1940 (“the 1940 Act”), as amended, as a diversified closed-end management investment company whose shares trade on the New York Stock Exchange and the Chicago Stock Exchange. The Fund invests principally in investment grade long-term fixed income debt securities. The Fund’s primary objective is to provide shareholders with a stable stream of current income consistent with external interest rate conditions and provide a total return over time that is above what they could receive by investing individually in the investment grade and long-term maturity sectors of the bond market. There can be no assurance that the Fund’s investment objective will be achieved.

In the normal course of business, the Fund may enter into contracts that contain a variety of representations or that provide indemnification for certain liabilities. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. However, the Fund has not had any prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.

The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) is the exclusive reference of authoritative US generally accepted accounting principles (“US GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the US Securities and Exchange Commission (“SEC”) under authority of federal laws are also sources of authoritative US GAAP for SEC registrants. The Fund’s financial statements are prepared in accordance with US GAAP, which may require the use of management estimates and assumptions. Actual results could differ from those estimates. The following is a summary of significant accounting policies:

Valuation of investments
The Fund calculates its net asset value based on the current market value, where available, for its investments. The Fund normally obtains market values for its investments from independent pricing sources and broker-dealers. Independent pricing sources may use reported last sale prices, official market closing prices, current market quotations or valuations from computerized “evaluation” systems that derive values based on comparable investments. An evaluation system incorporates parameters such as security quality, maturity and coupon, and/or research and evaluations by its staff, including review of broker-dealer market price quotations, if available, in determining the valuation of the investments. Investments also may be valued based on appraisals derived from information concerning the investment or similar investments received from recognized dealers in those holdings. Investments traded in the over-the-counter (“OTC”) market and listed on The NASDAQ Stock Market, Inc. (“NASDAQ”) normally are valued at the NASDAQ Official Closing Price. Other OTC securities are valued at the last bid price on the valuation date available prior to valuation. Investments which are listed on US and foreign stock exchanges normally are valued at the market closing price, the last sale price on the day the securities are valued or, lacking any sales on such day, at the last available bid price. In cases where investments are traded on more than one exchange, the investments are valued on the exchange designated as the primary market by UBS Global Asset Management (Americas) Inc. (“UBS Global AM” or the “Advisor”), the investment advisor of the Fund. UBS Global AM is an indirect wholly owned asset management subsidiary of UBS AG, an internationally diversified organization with headquarters in Zurich and Basel, Switzerland and operations in many areas of the financial services industry. If a market value is not readily available from an independent pricing source for a particular investment, that investment is valued at a fair value determined in good faith by or under the direction of the Fund’s Board of Directors (the “Board”) (or a committee designated by it). Various factors may be reviewed in order to make a good faith determination of an investment’s fair value. These factors include, but are not limited to, fundamental analytical data relating to the investment; the nature and duration of restrictions on disposition of the investment; and the evaluation of forces which influence the market in which the investments are purchased and sold. Investments in open-end investment companies are valued at the daily closing net asset value of the respective investment company. Pursuant to the Fund’s use of the practical expedient within ASC Topic 820, investments in non-registered investment companies are also valued at the daily net asset value.

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Fort Dearborn Income Securities, Inc.
Notes to financial statements—March 31, 2014 (unaudited)

Certain investments in which the Fund invests are traded in markets that close before 4:00 p.m. Eastern time. Normally, developments that occur between the close of the foreign markets and 4:00 p.m. Eastern time will not be reflected in the Fund’s net asset value. However, if the Fund determines that such developments are so significant that they will materially affect the value of the Fund’s investments, the Fund may adjust the previous closing prices to reflect what the Board believes to be the fair value of these investments as of 4:00 p.m. Eastern time.

Futures contracts are generally valued at the settlement price established each day on the exchange on which they are traded. Forward foreign currency contracts are valued daily using forward exchange rates quoted by independent pricing services.

Swaps are marked-to-market daily based upon values from third party vendors or quotations from market makers to the extent available, and the change in value, if any, is recorded as an unrealized gain or loss on the Statement of assets and liabilities. In the event that market quotations are not readily available or deemed unreliable, the swap is valued at fair value as determined in good faith by or under the direction of the Board (or a committee designated by it).

The Board has delegated to the UBS Global Asset Management Global Valuation Committee (“GVC”) the responsibility for making fair value determinations with respect to the Fund’s portfolio holdings. The GVC is comprised of representatives of management, including members of the investment team.

The GVC provides reports to the Board at each quarterly meeting regarding any investments that have been fair valued, valued pursuant to standing instructions approved by the GVC, or where non-vendor pricing sources had been used to make fair value determinations when sufficient information exists during the prior quarter. Fair valuation determinations are subject to review at least monthly by the GVC during scheduled meetings. Pricing decisions, processes, and controls over fair value determinations are subject to internal and external reviews, including annual internal compliance reviews and periodic internal audit reviews.

The types of investments for which such fair value pricing may be necessary include, but are not limited to: foreign investments under some circumstances, as discussed below; securities of an issuer that has entered into a restructuring; investments whose trading has been halted or suspended; fixed income securities that are in default and for which there is no current market value quotation; and investments that are restricted as to transfer or resale. The need to fair value a Fund’s investments may also result from low trading volume in foreign markets or thinly traded domestic investments, and when a security that is subject to a trading limit or collar on the exchange or market on which it is primarily traded reaches the “limit up” or “limit down” price and no trading has taken place at that price. Various factors may be reviewed in order to make a good faith determination of an investment’s fair value. These factors include, but are not limited to, fundamental analytical data relating to the investment; the nature and duration of restrictions on disposition of the investment; and the evaluation of forces which influence the market in which the investment is purchased and sold. Valuing investments at fair value involves greater reliance on judgment than valuing investments that have readily available market quotations. Fair value determinations can also involve reliance on quantitative models employed by a fair value pricing service.

US GAAP requires disclosure surrounding the various inputs that are used in determining the value of the Fund’s investments. These inputs are summarized into the three broad levels listed below:

Level 1—Unadjusted quoted prices in active markets for identical investments.

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Fort Dearborn Income Securities, Inc.
Notes to financial statements—March 31, 2014 (unaudited)

Level 2—Other significant observable inputs, including but not limited to, quoted prices for similar investments, interest rates, prepayment speeds and credit risk.

Level 3—Unobservable inputs inclusive of the Fund’s own assumptions in determining the fair value of investments.

A fair value hierarchy has been included near the end of the Fund’s Portfolio of investments.

The provisions of ASC Topic 815 “Derivatives and Hedging” (“ASC Topic 815”) require qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk related contingent features in derivative agreements. Since investment companies value their derivatives at fair value and recognize changes in fair value through the Statement of operations, they do not qualify for hedge accounting under ASC Topic 815. Accordingly, even though the Fund’s investments in derivatives may represent economic hedges, they are considered to be non-hedge transactions for purposes of disclosure under ASC Topic 815. ASC Topic 815 requires that (1) objectives for using derivative instruments be disclosed in terms of underlying risk and accounting designation, (2) the fair values of derivative instruments and their gains and losses be disclosed in a tabular format, and (3) information be disclosed about credit-risk contingent features of derivatives contracts. Details of this disclosure can be found below as well as in the Portfolio of investments. Swap agreements, forward foreign currency contracts, swaptions and options written entered into by the Fund may contain credit-risk related contingent features that could be triggered subject to certain circumstances. Such circumstances include agreed upon net asset value thresholds. If triggered, the derivative counterparty could request additional cash margin and/or terminate the derivative contract. The aggregate fair value of the derivative contracts that are in a net liability position that contain these triggers can be found in the Portfolio of investments. The aggregate fair value of assets that are already posted as collateral as of March 31, 2014 is reflected in the Statement of assets and liabilities. If the applicable credit-risk related contingent features were triggered as of March 31, 2014 the Fund would be required to post additional collateral or may be required to terminate the contracts and settle any amounts outstanding. The volume of derivatives that is presented in the Portfolio of investments of the Fund is consistent with the derivative activity during the period ended March 31, 2014. The Fund may be a seller of protection through credit default swap agreements which are by nature credit-risk contingent (the terms of these agreements can be found within the Portfolio of investments, with further discussion in the Notes to financial statements).

Disclosure of derivatives by underlying risk for the Fund as of and for the period ended March 31, 2014 is as follows:

Asset derivatives
		Interest rate risk			Total
Futures contracts1		$	191,922		$	191,922
Options purchased2			15,600			15,600
Total value		$	207,522		$	207,522

1	Includes cumulative appreciation of futures contracts as reported in the futures contracts table in the Portfolio of investments, but only the unpaid variation margin is reported within the Statement of assets and liabilities within Variation margin on futures contracts.
2	Statement of assets and liabilities location: Options purchased are shown within investments in securities of unaffiliated issuers, at value.

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Fort Dearborn Income Securities, Inc.
Notes to financial statements—March 31, 2014 (unaudited)

Liability derivatives
		Interest rate risk				Credit risk				Total
Futures contracts1		$	(184,645	)		$	—			$	(184,645	)
Options written2			(45,287	)			(40,143	)			(85,430	)
Swap agreements2			—				(101,518	)			(101,518	)
Total value		$	(229,932	)		$	(141,661	)		$	(371,593	)

1	Includes cumulative depreciation of futures contracts as reported in the futures contracts table in the Portfolio of investments, but only the unpaid variation margin is reported within the Statement of assets and liabilities within Variation margin on futures contracts.
2	Statement of assets and liabilities location: Options written, at value and outstanding swap agreements, at value.

Activities in derivative instruments during the period ended March 31, 2014, were as follows:

		Interest rate risk				Credit risk						Total
Net realized gain (loss)1
Futures contracts		$	(336,038	)			$	—				$	(336,038	)
Options purchased2			(412,516	)				—					(412,516	)
Options written			15,538					—					15,538
Swap agreements			—					16,333					16,333
Total net realized gain (loss)		$	(733,016	)			$	16,333				$	(716,683	)
Change in net unrealized appreciation/depreciation3
Futures contracts			7,277					—					7,277
Options purchased2			(28,288	)				—					(28,288	)
Options written			(17,477	)				(8,293	)				(25,770	)
Swap agreements			—					(17,053	)				(17,053	)
Total change in net unrealized appreciation/depreciation		$	(38,488	)			$	(25,346	)			$	(63,834	)

1	Statement of operations location: Net realized gain (loss) on futures contracts, options written and swap agreements.
2	Realized and unrealized gain (loss) is included in net realized gain (loss) on investments and change in net unrealized appreciation/depreciation on investments.
3	Statement of operations location: Change in net unrealized appreciation/depreciation on futures contracts, options written and swap agreements.

Offsetting of Financial and Derivative Assets and Liabilities
In January 2013, Accounting Standards Update 2013-01 (“ASU 2013-01”), “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities”, replaced Accounting Standards Update 2011-11 (“ASU 2011-11”), “Disclosures about Offsetting Assets and Liabilities”. ASU 2013-01 is effective for fiscal years beginning on or after January 1, 2013, and interim periods within those annual periods. ASU 2011-11 was intended to enhance disclosure requirements on the offsetting of financial assets and liabilities. ASU 2013-01 limits the scope of the new balance sheet offsetting disclosures to derivatives, repurchase and reverse repurchase agreements, and securities lending and borrowing transactions to the extent that they are (1) offset in the financial statements or (2) subject to an enforceable master netting arrangement or similar agreement.

Liabilities
		Gross amounts presented in the statement of assets & liabilities						Gross amounts not offset in the statement of assets & liabilities
								Financial instruments		Collateral pledged		Net amount
Counterparty - BOA			$	(141,661	)			$141,661		$—		$—

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Fort Dearborn Income Securities, Inc.
Notes to financial statements—March 31, 2014 (unaudited)

Restricted securities
The Fund may invest in securities that are subject to legal or contractual restrictions on resale. These securities generally may be resold in transactions exempt from registration or to the public if the securities are registered. Disposal of these securities may involve time-consuming negotiations and expense, and prompt sale at an acceptable price may be difficult. Information regarding restricted securities, if any, is included in the Fund’s Portfolio of investments footnotes.

Mortgage-backed securities and other investments
The Fund invests in Mortgage-Backed Securities (MBS), representing interests in pools of mortgage loans. These securities provide shareholders with payments consisting of both principal and interest as the mortgages in the underlying mortgage pools are paid. MBS issued by private entities are not government securities and are not directly guaranteed by any government agency. They are secured by the underlying collateral of the private issuer. Yields on privately issued MBS tend to be higher than those of government backed issues. However, risk of loss due to default and sensitivity to interest rate fluctuations is also higher. Freddie Mac and Fannie Mae historically were agencies sponsored by the US government that were supported only by the credit of the issuing agencies and not backed by the full faith and credit of the United States. However, on September 7, 2008, due to the value of Freddie Mac’s and Fannie Mae’s securities falling sharply and concerns that the firms did not have sufficient capital to offset losses resulting from the mortgage crisis, the Federal Housing Finance Agency placed Freddie Mac and Fannie Mae into conservatorship. As a result, Fannie Mae and Freddie Mac obligations became guaranteed obligations of the United States. Although the US government or its agencies provide financial support to such entities, no assurance can be given that they will always do so. The US government and its agencies and instrumentalities do not guarantee the market value of their securities; consequently, the value of such securities will fluctuate.

The Fund invests in Collateralized Mortgage Obligations (CMOs). A CMO is a bond, which is collateralized by a pool of MBS. The Fund may also invest in REMICs (Real Estate Mortgage Investment Conduits) which are simply another form of CMO. These MBS pools are divided into classes or tranches with each class having its own characteristics. The different classes are retired in sequence as the underlying mortgages are repaid. For instance, a Planned Amortization Class (PAC) is a specific class of mortgages, which over its life will generally have the most stable cash flows and the lowest prepayment risk. A Graduated Payment Mortgage (GPM) is a negative amortization mortgage where the payment amount gradually increases over the life of the mortgage. The early payment amounts are not sufficient to cover the interest due, and therefore, the unpaid interest is added to the principal, thus increasing the borrower’s mortgage balance. Prepayment may shorten the stated maturity of the CMO and can result in a loss of premium, if any has been paid.

The Fund invests in Asset-Backed Securities, representing interests in pools of certain types of underlying installment loans or leases or by revolving lines of credit. They often include credit enhancement that help limit investors’ exposure to the underlying credit. These securities are valued on the basis of timing and certainty of cash flows compared to investments with similar durations.

Interest-only and principal-only securities
Certain classes of CMOs and other mortgage-backed securities are structured in a manner that makes them extremely sensitive to changes in prepayment rates. Interest-only (“IO”) and principal-only (“PO”) classes are examples of this. IOs are entitled to receive all or a portion of the interest, but none (or only a nominal amount) of the principal payments, from the underlying mortgage assets. If the mortgage assets underlying an IO experience greater than anticipated principal prepayments, then the total amount of interest payments allocable to the IO class, and therefore the yield to investors, generally will be reduced. In some instances, an investor in an IO may fail to recoup all of its initial investment, even if the security is government issued or guaranteed or is rated AAA or the equivalent. Conversely, PO classes are entitled to receive all or a portion of the principal payments, but none

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Fort Dearborn Income Securities, Inc.
Notes to financial statements—March 31, 2014 (unaudited)

of the interest, from the underlying mortgage assets. PO classes are purchased at substantial discounts from par, and the yield to investors will be reduced if principal payments are slower than expected. Some IOs and POs, as well as other CMO classes, are structured to have special protections against the effects of prepayments. These structural protections, however, normally are effective only within certain ranges of prepayment rates and thus will not protect investors in all circumstances. Inverse floating rate CMO classes also may be extremely volatile. These classes pay interest at a rate that decreases when a specified index of market rates increases and vice versa. Although the market for IOs and POs is increasingly liquid, certain IOs and POs may not be readily marketable and will be considered illiquid.

Investment transactions and investment income
Investment transactions are recorded on the trade date. Realized gains and losses from investment transactions and foreign exchange transactions are calculated using the identified cost method. Interest income is recorded on an accrual basis. Discounts are accreted and premiums are amortized as adjustments to interest income and the identified cost of investments. Dividend income is recorded on the ex-dividend date.

Foreign currency translation
The Fund uses the foreign currency exchange rates determined as of the close of regular trading on the NYSE. For purposes of calculating the US dollar equivalent value of a non-US dollar denominated obligation, foreign currency amounts are translated into US dollars on the following basis: (1) market value of investment securities and other assets and liabilities—at the exchange rates prevailing at the end of the Fund’s fiscal period; and (2) purchases and sales of investment securities and income and expenses—at the rates of exchange prevailing on the respective dates of such transactions.

Although the net assets and the market value of the Fund’s portfolio are presented at the foreign exchange rates at the end of the Fund’s fiscal period, the Fund does not generally isolate the effect of fluctuations in foreign exchange rates from the effect of the changes in market prices of securities. However, the Fund does isolate the effect of fluctuations in foreign exchange rates when determining the realized gain or loss upon the sale or maturity of foreign currency-denominated securities pursuant to US federal income tax regulations. Certain foreign exchange gains and losses included in realized and unrealized gains and losses are included in, or are a reduction of, ordinary income in accordance with US federal income tax regulations.

Forward foreign currency contracts
The Fund may enter into forward foreign currency contracts (“forward contracts”) in connection with planned purchases or sales of securities or to hedge the US dollar value of portfolio securities denominated in a particular currency. The Fund may also use forward contracts in an attempt to enhance income or gains.

The Fund has no specific limitation on the percentage of assets which may be committed to such contracts. The Fund may enter into forward contracts or maintain a net exposure to forward contracts only if (1) the consummation of the contracts would not obligate the Fund to deliver an amount of foreign currency in excess of the value of the position being hedged by such contracts or (2) the Fund identifies cash or liquid securities in an amount not less than the value of its assets committed to the consummation of the forward contracts and not covered as provided in (1) above, as marked-to-market daily.

Risks may arise upon entering into forward contracts from the potential inability of counterparties to meet the terms of their forward contracts and from unanticipated movements in the value of foreign currencies relative to the US dollar.

Fluctuations in the value of forward contracts are recorded for book purposes as unrealized gains or losses by the Fund. Realized gains and losses include net gains and losses recognized by the Fund on contracts which have been sold or matured.

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Fort Dearborn Income Securities, Inc.
Notes to financial statements—March 31, 2014 (unaudited)

Futures contracts
The Fund may use financial futures contracts for hedging purposes and to adjust exposure to US and foreign fixed income markets in connection with a reallocation of the Fund’s assets or to manage the average duration of the Fund. The Fund may also use futures contracts in an attempt to enhance income or gains. However, imperfect correlations between futures contracts and the related securities or markets, or market disruptions, do not normally permit full control of these risks at all times. Using financial futures contracts involves various market risks, including interest rate risk. Risks of entering into futures contracts include the possibility that there may be an illiquid market or that a change in the value of the contract may not correlate with changes in the value of the underlying securities. To the extent that market prices move in an unexpected direction, there is a risk that the Fund will not achieve the anticipated benefits of the futures contract or may realize a loss.

Upon entering into a financial futures contract, the Fund is required to deliver to a broker an amount of cash and/or liquid securities equal to a certain percentage of the contract amount. This amount is known as the “initial margin.” Subsequent payments, known as “variation margin,” are made or received by the Fund each day, depending on the daily fluctuations in the value of the underlying financial futures contracts. Such variation margin is recorded for financial statement purposes on a daily basis as an unrealized gain or loss on futures until the futures contract is closed or expires, at which time the net gain or loss is reclassified to realized gain or loss on futures.

Swap agreements
The Fund may engage in swap agreements, including but not limited to interest rate, currency, total return, and credit default swap agreements. The Fund expects to enter into these transactions to preserve a return or spread on a particular investment or to hedge a portion of the portfolio’s duration, to protect against any increase in the price of securities the Fund anticipates purchasing at a later date, to gain exposure to certain markets in the most economical way possible or in an attempt to enhance income or gains.

The Fund may enter into interest rate swap agreements with another party to receive or pay interest (e.g., an exchange of fixed rate payments for floating rate payments) to protect itself from interest rate fluctuations. This type of swap is an agreement that obligates two parties to exchange a series of cash flows at specified intervals based upon or calculated by reference to a specified interest rate(s) for a specified amount. The payment flows are usually netted against each other, with the difference being paid by one party to the other. In addition, the Fund may enter into interest rate cap and floor transactions which involve an agreement between two parties in which one party agrees to make payments to the other when a designated market interest rate goes above (in the case of a cap) or below (in the case of a floor) a designated level on pre-determined dates or during a specified period. Interest rate swap agreements are subject to general market risk, liquidity risk, counterparty risk and interest rate risk.

The Fund may enter into currency swap agreements with another party to receive or pay amounts based on changes in currency exchange rates in order to protect itself from exchange rate fluctuations. This type of swap is an agreement that obligates two parties to exchange a series of cash flows at specified intervals based upon or calculated by reference to a specified currency exchange rate(s) for a specified amount. Currency swap agreements are subject to general market risk, liquidity risk, counterparty risk, foreign exchange risk and interest rate risk.

Credit default swap agreements involve commitments to make or receive payments in the event of a default or other credit event of a referenced security. As a buyer, the Fund would make periodic payments to the counterparty, and the Fund would receive payments only upon the occurrence of a credit event. If no credit event occurs, the Fund will lose its periodic stream of payments over the term of the contract. However, if a credit event does occur, the Fund typically would receive full notional value for a reference obligation that may have little or no value. As a seller, the Fund would receive periodic payments from the counterparty, and the Fund would make

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Fort Dearborn Income Securities, Inc.
Notes to financial statements—March 31, 2014 (unaudited)

payments only upon the occurrence of a credit event. If no credit event occurs, the Fund will retain the periodic stream of payments it received over the term of the contract. However, if a credit event occurs, the Fund will pay full notional value for a reference obligation that may have little or no value. Credit default swaps may involve greater risks than if the Fund had invested in the reference obligation directly and are subject to general market risk, liquidity risk, counterparty risk and credit risk.

Credit default swap agreements on corporate issues or sovereign issues of an emerging market country involve one party making a stream of payments to another party in exchange for the right to receive a specified return in the event of a default or other credit event. If a credit event occurs and cash settlement is not elected, a variety of other obligations may be delivered in lieu of the specific referenced obligation. The ability to deliver other obligations may result in delivery of a security with a value other than had been anticipated (such as a party’s right to choose the deliverable obligation with the lowest value following a credit event). The Fund may use credit default swaps on corporate issues or sovereign issues of an emerging market country to provide a measure of protection against defaults of the issuers (i.e., to reduce risk where the Fund owns or has exposure to the referenced obligation) or to take an active long or short position with respect to the likelihood of a particular issuer’s default.

The maximum potential amount of future payments (undiscounted) that the Fund as a seller of protection could be required to make under a credit default swap agreement would be an amount equal to the notional amount of the agreement. Notional amounts of all credit default swap agreements outstanding as of March 31, 2014 for which the Fund is the seller of protection are disclosed under the section “Credit default swaps on credit indices—sell protection” in the Notes to Portfolio of investments. These potential amounts would be partially offset by any recovery values of the respective referenced obligations, upfront payments received upon entering into the agreement, or net amounts received from the settlement of buy protection credit default swap agreements entered into, if any, by the Fund for the same referenced entity or entities.

Total return swap agreements involve commitments to pay or receive interest in exchange for a market-linked return based on a notional amount. To the extent the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the Fund will receive a payment from or make a payment to the counterparty, respectively. Total return swaps are marked-to-market daily, and the change, if any, is recorded as unrealized appreciation or depreciation. Total return swap agreements are subject to general market risk, liquidity risk, counterparty risk and the risk that there may be unfavorable changes in the underlying investments or instruments.

Certain clearinghouses currently offer clearing for limited types of derivatives transactions, such as interest and credit derivatives. In a cleared derivative transaction, a Fund typically enters into the transaction with a financial institution counterparty, and performance of the transaction is effectively guaranteed by a central clearinghouse, thereby reducing or eliminating the Fund’s exposure to the credit risk of its original counterparty. The Fund will be required to post specified levels of margin with the clearinghouse or at the instruction of the clearinghouse; the margin required by a clearinghouse may be greater than the margin the Fund would be required to post in an uncleared transaction. Only a limited number of transactions are currently eligible for clearing. Centrally cleared swaps, if any, are reported on the Statement of assets and liabilities based on variation margin received or paid, if any.

The use of swap agreements involves investment techniques and risks different from those associated with ordinary portfolio security transactions. If UBS Global AM is incorrect in its forecast of market values, interest rates and other applicable factors, the investment performance of the Fund will be less favorable than it would have been if this

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Fort Dearborn Income Securities, Inc.
Notes to financial statements—March 31, 2014 (unaudited)

investment technique was never used. Swap agreements do not involve the delivery of securities and are subject to counterparty risk. If the other party to a swap agreement defaults and fails to consummate the transaction, the Fund’s risk of loss will consist of the net amount of interest or other payments that the Fund is contractually entitled to receive. Therefore, the Fund would consider the creditworthiness of the counterparty to a swap agreement in evaluating potential credit risk.

The Fund accrues for interim payments on swap agreements on a daily basis, with the net amount recorded within outstanding swap agreements, at value on the Statement of assets and liabilities. Once interim payments are settled in cash, the net amount is recorded as realized gain/loss on swap agreements, in addition to realized gain/loss recorded upon the termination of swap agreements on the Statement of operations. Fluctuations in the value of swap agreements are recorded for financial statement purposes as unrealized appreciation or depreciation on swap agreements.

Option writing
The Fund may write (sell) put and call options on foreign or US securities, indices, foreign currencies and swaps (commonly referred to as swaptions), in order to gain exposure to or protect against changes in the markets. When the Fund writes a call or a put option, an amount equal to the premium received by the Fund is included in the Fund’s Statement of assets and liabilities as an asset and as an equivalent liability. The amount of the liability is subsequently marked-to-market to reflect the current market value of the option written. If an option which the Fund has written either expires on its stipulated expiration date or the Fund enters into a closing purchase transaction, the Fund realizes a gain (or loss if the cost of a closing purchase transaction exceeds the premium received when the option was written) without regard to any unrealized gain or loss on the underlying security or derivative instrument, and the liability related to such option is extinguished. If a call option which the Fund has written is exercised, the Fund recognizes a realized gain or loss (long-term or short-term, depending on the holding period of the underlying security) from the sale of the underlying security or derivative instrument and the proceeds from the sale are increased by the premium originally received. If a put option which the Fund has written is exercised, the amount of the premium originally received reduces the cost of the security or derivative instrument which the Fund purchases upon exercise of the option.

In writing an option, the Fund bears the market risk of an unfavorable change in the price of the derivative instrument, security, index or currency underlying the written option. Exercise of an option written by the Fund could result in the Fund selling or buying a derivative instrument, security or currency at a price different from current market value.

Purchased options
The Fund may purchase put and call options on foreign or US securities, indices, foreign currencies and swaps (commonly referred to as swaptions), as well as exchange listed call options on particular market segment indices to achieve temporary exposure to a specific security, currency, industry or geographic region. Purchasing call options tends to increase exposure to the underlying instrument. Purchasing put options tends to decrease exposure to the underlying instrument. The Fund pays a premium which is included in the Statement of assets and liabilities as an investment and subsequently marked-to-market to reflect the current value of the option. Premiums paid for purchasing options which expire are treated as realized losses. The risk associated with purchasing put and call options is limited to the premium paid. Premiums paid for purchasing options which are exercised or closed are added to the amounts paid or offset against the proceeds on the underlying futures, security or currency transaction to determine the realized gain or loss.

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Fort Dearborn Income Securities, Inc.
Notes to financial statements—March 31, 2014 (unaudited)

 
Dividends and distributions
Dividends and distributions to shareholders are recorded on the ex-dividend date. The amounts of dividends from net investment income and distributions of net realized capital gains and/or return of capital are determined in accordance with income tax regulations, which may differ from US GAAP. These “book/tax” differences are either considered temporary or permanent in nature. To the extent they are permanent in nature, such amounts are reclassified within the capital accounts based on their federal tax-basis treatment; temporary differences do not require reclassification.

Concentration of risk
Investing in securities of foreign issuers and currency transactions may involve certain considerations and risks not typically associated with investments in US securities. These risks include revaluation of currencies, adverse fluctuations in foreign currency values and possible adverse political, social and economic developments, including those particular to a specific industry, country or region, which could cause the securities and their markets to be less liquid and prices more volatile than those of comparable US companies and US government securities. These risks are greater with respect to securities of issuers located in emerging market countries in which the Fund invests. As of March 31, 2014, the Fund had less than 10% of net assets invested in emerging market countries. The ability of the issuers of debt securities held by the Fund to meet their obligations may be affected by economic and political developments particular to a specific industry, country, state or region.

High yield bond risk
Investing in high yield bonds involves the risk that the issuer of bonds with ratings of BB (S&P) or Ba (Moody’s) or below, or deemed of equivalent quality, will default or otherwise be unable to honor a financial obligation (also known as lower-rated or “junk bonds”). These securities are considered to be predominately speculative with respect to an issuer’s capacity to pay interest and repay principal in accordance with the terms of the obligations. Lower-quality bonds are more likely to be subject to an issuer’s default or downgrade than investment grade (higher-quality) bonds.

Capital stock
At March 31, 2014, there were 12,000,000 shares of $0.01 par value capital stock authorized, and 8,775,665 shares issued and outstanding. During the period ended March 31, 2014, no new shares were issued as part of the dividend reinvestment plan.

Investment advisory fees and other transactions with affiliates
Under an agreement between the Fund and UBS Global AM, UBS Global AM manages the Fund’s investment portfolio, maintains its accounts and records, and furnishes the services of individuals to perform executive functions for the Fund. In return for these services, the Fund pays UBS Global AM 0.50% per annum of the Fund’s average weekly net assets up to $100,000,000 and 0.40% per annum of average weekly net assets in excess of $100,000,000. At March 31, 2014 the Fund owed UBS Global AM $162,960 for investment advisory fees.

Purchases and sales of securities
Purchases and sales (including maturities) of portfolio securities during the period ended March 31, 2014, were as follows: debt securities, excluding short-term securities and US government debt obligations, $35,484,606 and $32,367,396, respectively; and US government debt obligations, $2,239,789 and $5,033,779, respectively.

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Fort Dearborn Income Securities, Inc.
Notes to financial statements—March 31, 2014 (unaudited)

 
Federal tax status
It is the Fund’s policy to comply with all requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. In addition, by distributing during each calendar year substantially all of its net investment income, net realized capital gains and certain other amounts, if any, the Fund intends not to be subject to a federal excise tax. Accordingly, no federal income tax provision was required.

The tax character of distributions paid during the year ended September 30, 2013 was as follows:

Distributions paid from:		2013
Ordinary income		$	8,928,584
Net long-term capital gains			4,436,754
		$	13,365,338

The tax character of distributions paid and components of accumulated earnings (deficit) on a tax basis for the current fiscal year will be determined after the Fund’s fiscal year ending September 30, 2014.

Under the Regulated Investment Company Modernization Act of 2010 (the “Act”), net capital losses recognized by the Fund after December 22, 2010 may be carried forward indefinitely, and retain their character as short-term and/or long term-losses. The Act requires that post-enactment net capital losses be used before pre-enactment net capital losses.

At September 30, 2013, the Fund had no pre-enactment or post-enactment capital loss carryforwards for federal income tax purposes available to offset future capital gains.

As of and during the period ended March 31, 2014, the Fund did not have any liabilities for any uncertain tax positions. The Fund recognizes interest and penalties, if any, related to uncertain tax positions as income tax expense in the Statement of operations. During the period, the Fund did not incur any interest or penalties.

Each of the tax years in the four year period ended September 30, 2013, remains subject to examination by the Internal Revenue Service and state taxing authorities.

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Fort Dearborn Income Securities, Inc.
General information (unaudited)

The Fund
Fort Dearborn Income Securities, Inc. (the “Fund”) is a diversified, closed-end management investment company whose shares trade on the New York Stock Exchange and the Chicago Stock Exchange. The primary objective of the Fund is to provide its shareholders with a stable stream of current income consistent with external interest rate conditions and provide a total return over time that is above what they could receive by investing individually in the investment grade and long-term maturity sectors of the bond market. There can be no assurance that the Fund’s investment objective will be achieved. The Fund’s investment advisor is UBS Global Asset Management (Americas) Inc. (“UBS Global AM”).

Shareholder information
The Fund’s NYSE trading symbol is “FDI.” Net asset value and market price information as well as other information about the Fund is updated each business day on the Web site of the Fund’s advisor at the following internet address: http://globalam-us.ubs.com/corpweb/closedendedfunds.do.

An annual meeting of the shareholders of the Fund was held on December 6, 2013. At the meeting, Adela Cepeda, John J. Murphy, Frank K. Reilly, Edward M. Roob, Abbie J. Smith and J. Mikesell Thomas were elected to serve as directors until the next annual meeting of shareholders, or until their successors are elected and qualified or until they resign or are otherwise removed. The shares were voted as indicated below:

To vote for or withhold authority in the election of:		Shares voted for		Shares withhold authority
Adela Cepeda		5,983,119		494,612
John J. Murphy		5,988,499		489,232
Frank K. Reilly		5,986,952		490,778
Edward M. Roob		5,982,707		495,023
Abbie J. Smith		5,926,709		551,021
J. Mikesell Thomas		5,929,742		547,989

Quarterly Form N-Q portfolio schedule
The Fund will file its complete schedule of portfolio holdings with the Securities and Exchange Commission (“SEC”) for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the SEC’s Web site at http://www.sec.gov. The Fund’s Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the SEC’s Public Reference Room may be obtained by calling 1-202-551 8090. Additionally, you may obtain copies of Form N-Q from the Fund upon request by calling 1-888-793-8637.

Proxy voting policies, procedures and record
You may obtain a description of the Fund’s (1) proxy voting policies (2) proxy voting procedures, and (3) information regarding how the Fund voted any proxies related to portfolio securities during the most recent 12-month period ended June 30 for which an SEC filing has been made, without charge, upon request by contacting the Fund directly at 1-888-793-8637, online on the Fund’s Web site: http://www.ubs.com/us/en/asset_management/ individual_investors/closed_end_funds.html or on the EDGAR Database on the SEC’s Web site (http://www.sec.gov.)

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Fort Dearborn Income Securities, Inc.
General information (unaudited)

Stock repurchase plan
On July 28, 1988, the Board of Directors of the Fund approved a resolution to repurchase up to 700,000 of its common shares. The Fund may repurchase shares, at a price not in excess of market and at a discount from net asset value, if and when such repurchases are deemed appropriate and in the shareholders’ best interest. Any repurchases will be made in compliance with applicable requirements of the federal securities law.

Dividend reinvestment plan
The Fund has established a dividend reinvestment plan (the “Plan”) under which all shareholders whose shares are registered in their own names, or in the name of a participating broker or its nominee, may elect to have all dividends and other distributions automatically reinvested in additional Fund shares. Shareholders who elect to hold their shares in the name of a broker or nominee should contact such broker or nominee to determine whether, or how, they may participate in the Plan. The ability of such shareholders to participate in the Plan may change if their shares are transferred into the name of another broker or nominee. More information regarding the Plan is provided below.

The Plan is applicable in each case where the Fund declares a dividend or other distribution payable in cash and simultaneously gives to its shareholders who are participants under the Plan (“Participants”) the option to receive such dividend or other distribution in Fund shares.

Commencing seven trading days prior to the date of payment of such dividend or other distribution, but only if the market price plus brokerage commissions at the time of purchase is lower than the net asset value as of the close of business on the eighth trading day prior to such date of payment (“Base Net Asset Value”), the agent (the “Agent”), on behalf of the Participants, will purchase shares in the open market(s) available to it. There can be no assurance that shares will be available in such open market(s) at a cost lower than Base Net Asset Value or in sufficient quantities to permit such purchases by the Agent. These purchases may be made on any securities exchange where such shares are traded, in the over-the-counter market or by negotiated transactions and may be subject to such terms of price, delivery, etc., to which the Agent may agree. If the market price for the shares is greater than the net asset value as of the close of business on the eighth trading day prior to the date of payment, then the Fund will issue shares in payment of the dividend.

On the date of payment of such dividend or other distribution, the Agent will elect to have the Fund pay the dividend or other distribution in cash to the extent of the cost, including brokerage commissions, of the shares to be purchased by the Agent, and will elect to have the Fund pay the balance, if any, of the dividend or other distribution in shares. Such payments will be made by the Fund to Computershare Trust Company, N.A. (“Computershare”) as administrator of the Plan for the Participants. Computershare, in turn, will immediately settle the open market purchases with the Agent. If shares are distributed in payment of a dividend or distribution because market price exceeded net asset value, a Participant will be required to include in gross income an amount equal to the greater of net asset value or 95% of fair market value (average of the high and low sales price on the date of the distribution) of the shares received by the Participant rather than the amount of such dividend. Distributions of shares will be subject to the right of the Fund to take such actions as may be deemed necessary in order to comply with or conform to the requirements of any applicable law or regulation.

The shares credited to the accounts of Participants at Computershare will be determined on the basis of the amount of dividend or distribution to which each Participant is entitled, whether shares are purchased on the open market or issued by the Fund. Each Participant will be furnished with periodic statements.

A Participant will have the right to vote the full shares credited to the Participant’s account under the Plan on the record date for a vote. Proxies sent to a Participant by Computershare will include the number of full shares held for the Participant under the Plan.

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Fort Dearborn Income Securities, Inc.
General information (unaudited)

 
The investment of dividends and distributions under the Plan does not relieve the Participant of any income tax which may be payable on such dividends or distributions. Annually, each participant will be provided with information for tax purposes with respect to the dividends and distributions on the shares held for the account of the Participant. The Fund strongly recommends that all Participants retain each year’s final statement on their Plan participation as a part of their permanent tax record.

Shareholders who wish to elect to participate in the Plan should contact Computershare for further information. A Participant may terminate participation in the Plan at any time by notice in writing to Computershare.

All correspondence concerning the Plan should be mailed to Computershare at P.O. Box 30170 College Station, TX 77842-3170. Overnight correspondence should be sent to Computershare at 211 Quality Circle, Suite 210, College Station, TX 77845. You may also contact Computershare directly at 1-800-446 2617. In order to be effective on the payment date of any dividend or distribution, notice of such termination must be received by Computershare before the record date for the payment of such dividend or distribution. If a notice to discontinue is received by Computershare on or after the record date for a dividend payment, such notice to discontinue may not become effective until such dividend has been reinvested and the shares purchased are credited to the Participant’s account under the Plan. Computershare, in its sole discretion, may either pay such dividend in cash or reinvest it in shares on behalf of the terminating Participant. Computershare may terminate, for whatever reason at any time as it may determine in its sole discretion, an individual’s participation in the Plan upon mailing a notice of termination to the Participant at the Participant’s address as it appears on Computershare’s records.

When an account is terminated, the Participant will receive a certificate for the number of full shares credited to the Participant’s account under the Plan, unless the sale of all or part of such shares is requested. Such sale may, but need not, be made by purchase of the shares for the account of other Participants and any such transaction shall be deemed to have been made at the then current market price less any applicable brokerage commissions and any other costs of sale. The terminating Participant’s fractional share interest in the Plan will be aggregated with the fractional share interests of other terminating Participants and sold. The net proceeds of such sales will be distributed to the Participants in payment for their fractional share interests.

The Fund may terminate or amend the Plan upon thirty (30) days’ notice in writing to each Participant, such termination or amendment to be effective as to all dividends and distributions payable to shareholders of record on any date more than thirty (30) days after mailing of such notice.

There is no direct service charge (other than brokerage commissions) by the Agent to Participants in the Plan. All costs of the Plan, except brokerage commissions, will be paid by the Fund. However, the Fund reserves the right to amend the Plan in the future to include a service charge.

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Directors Adela Cepeda Frank K. Reilly Abbie J. Smith		Edward M. Roob J. Mikesell Thomas John Murphy
Principal Officers Mark E. Carver President Mark F. Kemper Vice President and Secretary		Thomas Disbrow Vice President and Treasurer
Investment Advisor UBS Global Asset Management (Americas) Inc. 1285 Avenue of the Americas New York, New York 10019-6028

Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940 that from time to time the Fund may purchase shares of its common stock in the open market at market prices.

The financial information included herein is taken from the records of the Fund without examination by independent registered public accountants who do not express an opinion thereon.

This report is sent to the shareholders of the Fund for their information. It is not a prospectus, circular or representation intended for use in the purchase or sale of shares of the Fund or of any securities mentioned in this report.

© 2014 UBS Global Asset Management (Americas) Inc. All rights reserved.

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©UBS 2014. All rights reserved.

UBS Global Asset Management (Americas) Inc. is a

subsidiary of UBS AG.

May 2014

www.ubs.com/globalam-us

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Item 2. Code of Ethics.

Form N-CSR disclosure requirement not applicable to this filing of a semi-annual report.

Item 3. Audit Committee Financial Expert.

Form N-CSR disclosure requirement not applicable to this filing of a semi-annual report.

Item 4. Principal Accountant Fees and Services.

Form N-CSR disclosure requirement not applicable to this filing of a semi-annual report.

Item 5. Audit Committee of Listed Registrants.

Form N-CSR disclosure requirement not applicable to this filing of a semi-annual report.

Item 6. Schedule of Investments.

     (a) Included as part of the report to shareholders filed under Item 1 of this form.

     (b) Not applicable.

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.

Form N-CSR disclosure requirement not applicable to this filing of a semi-annual report.

Item 8. Portfolio Managers of Closed-End Management Investment Companies.

Form N-CSR disclosure requirement not applicable to this filing of a semi-annual report.

Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.

There were no purchases made by or on behalf of the registrant or any “affiliated purchaser,” as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended, of shares of the registrant’s equity securities made in the period covered by this report.

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Item 10. Submission of Matters to a Vote of Security Holders.

The registrant’s Board has established a Nominating, Compensation and Governance Committee. The Nominating, Compensation and Governance Committee will consider nominees recommended by Qualifying Fund Shareholders if a vacancy occurs among those board members who are not “interested persons” as defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended. A Qualifying Fund Shareholder is a shareholder that: (i) owns of record, or beneficially through a financial intermediary, ½ of 1% or more of the Fund’s outstanding shares and (ii) has been a shareholder of at least ½ of 1% of the Fund’s total outstanding shares for 12 months or more prior to submitting the recommendation to the Nominating, Compensation and Governance Committee. In order to recommend a nominee, a Qualifying Fund Shareholder should send a letter to the chairperson of the Nominating, Compensation and Governance Committee, Ms. Adela Cepeda, care of Mark Kemper, the Secretary of the Fund, at UBS Global Asset Management (Americas) Inc., One North Wacker Drive, Chicago, Illinois 60606. The Qualifying Fund Shareholder’s letter should include: (i) the name and address of the Qualifying Fund Shareholder making the recommendation; (ii) the number of shares of each class and series of shares of the Fund which are owned of record and beneficially by such Qualifying Fund Shareholder and the length of time that such shares have been so owned by the Qualifying Fund Shareholder; (iii) a description of all arrangements and understandings between such Qualifying Fund Shareholder and any other person or persons (naming such person or persons) pursuant to which the recommendation is being made; (iv) the name and address of the nominee; and (v) the nominee’s resume or curriculum vitae. The Qualifying Fund Shareholder’s letter must be accompanied by a written consent of the individual to stand for election if nominated for the Board and to serve if elected by shareholders. The Nominating, Compensation and Governance Committee may also seek such additional information about the nominee as it considers appropriate, including information relating to such nominee that is required to be disclosed in solicitations or proxies for the election of board members.

Item 11. Controls and Procedures.

	(a)		The registrant’s principal executive officer and principal financial officer have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended) are effective based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of this document.
	(b)		The registrant’s principal executive officer and principal financial officer are aware of no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940, as amended) that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

Item 12. Exhibits.

	(a)		(1) Code of Ethics – Form N-CSR disclosure requirement not applicable to this filing of a semiannual report.
	(a)		(2) Certifications of principal executive officer and principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 is attached hereto as Exhibit EX-99.CERT.
	(a)		(3) Written solicitation to purchase securities under Rule 23c-1 under the Investment Company Act of 1940 sent or given during the period covered by the report by or on behalf of the registrant to 10 or more persons – The registrant has not engaged in such a solicitation during the period covered by this report.
	(b)		Certifications of principal executive officer and principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 is attached hereto as Exhibit EX-99.906CERT.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Fort Dearborn Income Securities, Inc.

By:	/s/ Mark E. Carver
	Mark E. Carver
	President
Date:	June 9th, 2014

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Fort Dearborn Income Securities, Inc.

By:	/s/ Mark E. Carver
	Mark E. Carver
	President
Date:	June 9, 2014

By:	/s/ Thomas Disbrow
	Thomas Disbrow

	Vice President, Treasurer and Principal Accounting Officer
Date:	June 9th, 2014

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